It is a pleasure to launch this first edition of the OECD’s Regional Outlook. As you know, the unfolding debt crisis in the euro area, the persisting jobs crisis and the rising levels of inequality are slashing global economic moral. However, against this bleak scenario, the growth potential of regions should reinvigorate us with a welcome dose of optimism.

Why regions? Well firstly because they are important centres of gravity in a country’s economy. Their comparative advantages, endowments and overall dynamism can be powerful sources of growth and prosperity nation-wide.

Throughout the current crisis, some regions have been critical “emergency engines” for their national economies. In Europe, for example, regions like Baden-Württemberg in Germany or South Netherlands have resisted the crisis through powerful local innovation systems and high connectivity to global markets. But there are also industrial regions, like the Basque Country in Spain or the Marche region in Italy, that have shown remarkable resilience; outperforming their national averages.

And of course, regions are essential policy arenas to countries with multi-level governance systems. National policies are influenced by -- and need to respond to -- regional needs and aspirations.
So let me give you a taster of our Regional Outlook’s findings.

Regional policies for stronger, fairer, sustainable growth

This first edition argues that regional policies can help us achieve stronger growth towards a fairer and more environmentally sustainable economy. This is absolutely essential at a time when the global economy is mired with slow growth, high unemployment, political paralysis and social duress.

Until recently, regional policy was about helping laggards to catch up with their more prosperous neighbours. But today, modern regional policy is about growth and competitiveness. And it applies to all regions, not only those that may be left behind.

Addressing the functioning of local and regional economic systems, the links between them and the governance mechanisms that shape those relations, can make a big difference to a region’s – and ultimately, to a country’s – growth performance.

Yes, location matters. Whether resources are natural, human or intangible, they are located in a specific geographic space. That is why we at the OECD promote a place-based approach to economic policy.

Sub-national governments account for around two-thirds of total public investment

One of the most pressing challenges today is the need to “do better with less”. Most OECD countries face the challenge of trying to restore and sustain growth while pursuing fiscal consolidation, and these heavy budgetary constraints are weighing down on regions’ room for manoeuvre.

Public investment is a powerful lever to stimulate growth and sub-national governments account on average for around two-thirds of total public investment across the OECD. In this environment, it is more important than ever to make efficient and effective use of scarce budgetary resources.

Yet, as the Outlook shows, OECD countries often lack the appropriate tools, instruments and multi-level governance arrangements needed to make the best use of their resources. Innovative governance is essential for better design and implementation of public investment policies. The Outlook therefore discusses principles for the governance of public investments that align the objectives of central, regional and local governments.

Indeed, when governments need to tighten their belts, investments are often the first candidates for spending cuts. Sub-national governments’ tax revenues have fallen, while consolidation efforts in central governments have led to a drastic reduction in transfers.

At the same time, demand for social support and social services has been rising. Consequently, deficits have increased and sub-national governments’ debt in many countries is now well above 100-150% their annual revenues.

The Outlook highlights an important reason to take this problem seriously: in some countries, concerns about the indebtedness of sub-national governments are putting additional market pressure on national governments.

Financial markets have started to differentiate among regions, cities and local governments within countries, in much the same way as they assess creditworthiness among countries within a broader governance system, such as the EU. National fiscal consolidation plans and financial stability therefore require credible involvement of sub-national governments.

A regionally differentiated policy approach for employment

An additional area of focus for regions is, of course, jobs. In a number of OECD countries, half or more of the job losses due to the crisis and the ensuing recession have been concentrated in just one region, not necessarily a metropolitan area. Before the crisis, in some regions of Spain people were six times more likely to be jobless than in others. In the Slovak Republic, Italy and Belgium, long-term unemployment in the worst-affected regions is four times the national average. Even countries that have managed to maintain employment rates at or above pre-crisis levels would benefit greatly from employment growth in their hardest-hit regions.

Labour market policies cannot be “space-blind”. They need to take into account the territorial specificities of the labour market. Active labour market policies, such as to improve job matching and training, and efforts to disseminate information about the labour market, are likely to be better designed at regional or local level, rather than at the national level.

And national policies should at least allow considerable scope for place-specific adjustments. This is particularly important for countries where labour mobility has been severely constrained by factors such as house-price collapses and high levels of negative equity.

Tackling climate change needs to take account of the role of regions and cities

Let me just finish with a few words on the role of regions and urban policies in addressing the challenge of climate change. Over half of the world’s population now lives in cities. Urban areas account for an estimated 67% of global energy use and 71% of global energy-related CO2 emissions.

At the same time, better environmental policies may be good for urban development, as they enhance the attractiveness of cities. Because green growth is about synergies between environmental and economic policies, an urban policy package -- covering areas ranging from innovation to migration and to rural development -- has greater potential for delivering green growth than an economy-wide, space-blind, approach.

Ladies and gentlemen,

The critical point is that the analysis presented in the Regional Outlook stresses the limits of one-size-fits-all economy-wide policies for generating sustainable, inclusive growth. A more regionally differentiated approach offers a better way of tackling the growth, employment and environmental challenges we face in the difficult years ahead.

The 2011 Regional Outlook is an important milestone. It underscores the importance of regional policies as key elements of a well-balanced structural policy package. We are confident that this Outlook will be the first of many. In the current difficult economic environment we should not neglect the growth potential, dynamism and resilience of the many regions that make up our national economies.